Handling Payday Rush Post Demonetisation

Banks, private sector, governments and public sector enterprises are bracing up to face the challenges that will unfold during the first payday season since the sudden notes ban announcement. Banks across India are getting ready, though reluctantly, to face a massive rush for cash.

Though salaries get credited to the accounts of employees, they need to withdraw cash either from banks or ATMs. This will double or triple the queues that are still found before ATMs and bank branches. Additionally, a vast number of ATMs are still not recalibrated and hence unusable. Added to that, even before the expected payday rush, ATMs used to be emptied out no sooner than they were replenished with cash.

That means, longer queues, and a huge loss of working days on a national level. Besides, the restrictions on withdrawal of cash will be another impediment. This will put additional pressure on banks to fill up their ATMs and to permit higher withdrawals to reduce the queues.

The demonetisation of high value currency notes announced on November 8 took 86% of cash out of circulation all on a sudden. The result is a huge cash crunch affecting almost all people, especially the lower middle class, farmers and the poor.

So, whoever could manage to exchange old notes or withdraw from their accounts are hesitating to spend except for basic and urgent necessities. This resulted in an artificial cash shortage because money as usual did not go into circulation. That means, newly printed notes would not get back to the system as fast as expected.

Well before the payday season, the government and banks have been preparing to deal with the situation, but not, expectedly, enough. As per reports, banks are expected to see disbursal up to 30% more than usual due to withdrawals from accounts of salaries and pensions.

Ever since demonetisation was announced, the Reserve Bank of India (RBI) was planning to meet the challenges of the first payday rush. Accordingly, the RBI has promised ‘there will be improvement in cash supply’ to meet the rush, and there will be more new Rs. 500 notes.

However, several bank branches did not get the new Rs. 500 notes at all. Only adequate supply Rs 500 notes will ease the banking system. It is because this particular denomination has been the standard one for easy transactions. People are reluctant to receive Rs 2000 notes as they are difficult to use for daily transactions.

After cash crunch hit people, Rs 100 notes took the role of Rs 500 notes too. Banks too were dispensing this smaller denomination, making its circulation increase by 150% since demonetisation. And, people have started hoarding Rs 100 notes also, resulting in more crisis.

Though the weekly withdrawal maximum limit has been fixed at Rs 24,000, several banks have imposed their own limits, saying they cannot allow more than Rs 10,000 for shortage of notes. Even withdrawals from Jan Dhan accounts have been limited to Rs 10,000 a month, at least for now.

What can be understood from various reports is that, though government security presses are trying hard, they are unable to print enough currency to replace the banned notes to meet the demand. The problem is not with disbursing banks, but with the supply of notes. So, till the government can supply sufficient number of notes of the required denominations, the problems are likely to continue. And the withdrawal restrictions will also continue.

Let us see how the payday rush worsens or eases the current crisis.

Bankers Blues and Customers’ Woes

The Axis Bank Currency Conversion Case

Officials Axis Bank in Kashmiri Gate, Delhi, converted scraped notes worth Rs 30 crore for a hawala operator. On Friday, the Income Tax (I-T) department searched the bank premises and the residences of two senior bank officials who exchanged new Rs 500 and Rs 2,000 notes for old notes worth Rs 30 crore. The bank officials took 30% commission in gold bars from the hawala operator. Delhi Police had alerted the I-T officials after the arrest of a person with Rs 3.5 crore on November 21. According to Axis Bank, the customer who deposited the amount has been operating a current account for four years and deposits were made in his accounts. According to I-T officials, red flags were raised since a Gujarat bank official was caught receiving bribe of Rs 4 lakh in new Rs 2,000 notes on November 18. This is the first case of direct evidence of bank officials’ involvement in illegal conversion of banned notes and their collusion with hawala operators.

Four Employees of Bank of Maharashtra Suspended

Udgir is a small town in Latur district of Maharashtra. Four employees of the Bank of Maharashtra branch in Udgir exchanged invalid currency notes worth Rs 15 to 20 lakh fraudulently. They were caught and suspended. These bankers simply made unauthorized entries in the accounts of several customers. They too charged a commission of 30% from a local trader – seems to be the standard rate. Another employee of the bank promptly alerted the customer whose account was manipulated. The victim customer got frightened, rushed to the bank and made a hue and cry thereby alerting the manager and other staff. Inspector Balaji Sontakke of the crime branch of Latur said that their teams reached the bank where an audit was going on. He said depending on the outcome of the audit, a case would be registered.

The Noida Banker Helping a Friend Caught

Manoj Sharma, the branch manager of Oriental Bank of Commerce, Noida Phase 2, Uttar Pradesh, was caught by police while to helping a ‘friend’ change his black money. Sharma was caught while handing over Rs 1 lakh to the friend who had come with 25 ID proofs to cheat RBI rules on exchanging scrapped notes. The manager closed the bank on the pretext of running out of cash. Alert and aggrieved customers informed the District Magistrate N P Singh that ‘a few people were being entertained inside the branch’. Immediately Singh asked police to raid the branch. Police nabbed Sharma red-handed, while a long queue was waiting outside. Singh said that the police had shot a video of the incident as evidence and that a report had been sent to the bank’s Chairman and the finance ministry. According to the local people, black money hoarders do not have to stand in queues because they have their ‘friends’ in the bank, who help them by accepting several IDs provided either by the bank staff, or obtained from mobile phone shops. Another bank manager from Meerut reported that some persons approached him for IDs in bulk to exchange Rs 5 lakh worth of old notes, but he refused the offer.

Bank Accounts for Hire

Financial Intelligence agencies have dug up over 1,650 bank accounts which are on hire. Some people have been letting out their scarcely operated accounts for monthly rents from Rs 10,000 to Rs 15,000 to black money hoarders. One person had hired as many as 115 accounts. Agencies, which are scanning deposits made since November 8, issued show cause notices to such account holders. Agencies are trying to find out whether it is an organised racket, or run with connivance of bank staff. They are also looking into the role of bank staff in letting out accounts to convert black money. Reportedly, some bank officials were demanding 20% to 25% commission for depositing black money. On Thursday, agencies analyzed Suspicious Transaction Reports (STRs) from various states. They found 462 accounts from Bihar, 308 from West Bengal and 98 from Punjab had sudden surge of operations since Prime Minister Narendra Modi announced the demonetisation drive.

Jan Dhan Account Holders Caught Unawares

Jan Dhan account holders in Ludhiana alleged that they are refused withdrawals from their bank accounts. Bank officials said the trouble is only for accounts showing ‘dubious transactions’ and they had frozen such accounts. They said they have noticed that “gullible people are depositing hoarded cash into their Jan Dhan accounts”. The officials also said the frozen accounts are of people who have not fulfilled the Know Your Customer (KYC) norms and deposited cash after November 9.

Are Bank Officials Trading Your KYC Documents?

Several customers are stumped as bank officials tell them that they have already exchanged old notes, though it may be their first visit to the bank after demonetisation was announced. They allege that bank officials may be misusing their KYC documents. Some customers suspect that some bank officials may be misusing photocopies of KYC documents submitted with their banks. A Reserve Bank of India (RBI) official said that customers are not required to submit photocopies of any such documents but they can just show bank officials any of their identification proofs. If banks have customer’s KYC details, there is no need to provide additional proof. The official advised if there is any instance of manipulation, customers can approach the banking ombudsman.

Are Jan Dhan Yojana Accounts Repository of Black Money?

News reports indicate that there is a sudden surge of deposits in Pradhan Mantri Jan Dhan Yojana accounts following demonetisation of Indian currency announced on November 8. The deposits since have soared by around Rs. 27,198 crore in 14 days.

The Pradhan Mantri Jan Dhan Yojana (PMJDY) was launched on August 28, 2014 for promoting financial inclusion by providing banking services to the disadvantaged segments of society and with the objective of ensuring at least one bank account for every household.

As on 23 November 2016, total balance in 25.68 crore Jan Dhan bank accounts was Rs. 72,834.72 crore, as against the total balance of Rs 64,252.15 crore on 9 November. Out of 25.68 crore accounts 22.94 per cent are zero balance accounts, though the number of zero balance accounts have slightly declined.

However, the government and RBI have been alerting Jan Dhan account holders not to misuse their accounts by allowing black money hoarders to deposit the scrapped bank notes into their accounts, or allowing conversion of black money.

There are also reports that the Income Tax department is looking into the sudden surge in deposits, though the final data on the deposits will be available only after December 31. However, as the RBI has asked banks to send comprehensive reports, including denomination-wise deposits, these account holders need to be cautious and not misuse their accounts.

Also, there are various reports showing that unscrupulous hoarders of currency notes, hawala operators and even some business men using the Jan Dhan accounts, paying even a commission to the account owners.

The problem with many account holders is that many of them are either poorly educated or illiterate. They simply do not understand the implications of illegal currency conversion. For a poor person, money is only money and he or she cannot differentiate between black and white money.

What makes situation serious for these account holders is that the accounts were almost dormant for quite a long time and all of a sudden, when high value currency could not be exchanged elsewhere, most of them went and deposited the money accumulated with them in their bank accounts. Within limits, they are safe, but exceptionally bulged accounts may not stand the scrutiny of the tax sleuths.

And it is quite normal for rural India to keep whatever savings they have at their own houses. Even money for the marriage of girls are saved and accumulated in cash. Several people buy and sell land and other high value items using cash. That is the kind of economy in rural India. So, these people can be easily exploited by money lenders, cash hoarders, blade companies and other illegal operators.

Demonetisation causes 33 deaths, and counting

I am writing this after reading a detailed report of several deaths published by the Indian Express. Sadly, whatever may be the good intentions behind demonetizing Rs 500 and Rs 1000 notes, precious lives are lost for no obvious reasons directly attributable to them.

As many as four children died because hospitals/doctors refused to treat them as their families could not pay the hospital bills in currency other than the demonetised notes. A newborn baby died in Rajasthan because the driver of an ambulance refused to take the child to the hospital. In Sambalpur town in Odisha an auto rickshaw driver refused to take a two-year-old child to the hospital and the child had a premature death.

These sad incidents should shake the conscience of the entire nation, the politicians and leaders of both the ruling and opposition parties, and the entire humanity, and the guilty should not be spared.

As many as eight more unfortunate deaths occurred due to heart attacks and shock. Two men suffered attacks while watching PM Narendra Modi announcing the demonetisation – one is a Faizabad businessman and the other a Kanpur man who had received an advance payment of Rs 70 lakhs for selling his land. Curiously, a State Bank of India cashier from Bhopal too became a victim of heart failure, probably not because of any banking inconvenience.

The cases of two men – one from Kaimur district of Bihar and the other from Tarn Taran in Punjab were because both were planning the weddings of their daughters and their inability to exchange their hard-earned money may have triggered the attacks. The deaths of a 40-year-old washerwoman from Kushinagar, Uttar Pradesh, and the farmer from Tarapur, Gujarat, and the senior citizen from Mumbai were because they could not exchange or deposit their old notes.

These are not superrich people or those who had unaccounted wealth, but people who just could not think of losing their lifelong earnings and see their families suffer the pain and hardships. They would not have had such fates if they had black, counterfeit or illegal money. And if a poor family puts away a few hundred bucks per month for marrying off a daughter, it cannot be treated as illegal by any stretch of imagination, no matter whatever the law provides.

And there are eight suicides reported, five women and three men, from the states of Chhattisgarh, Tamil Nadu, Madhya Pradesh, Uttar Pradesh, Gujarat, Karnataka, and Telangana. Mostly, these were poor people who were not able to exchange their old notes and those who were unable to buy food for their families. The case of the farmer from Raigarh, Chhattisgarh, who committed suicide as he could not exchange a meager Rs 3,000 to send to his children stranded in Tamil Nadu, is the most heartrending and it shows the level of poverty. Successive governments could not eradicate poverty though it is going to be seven decades after India’s independence. That is an entire lifetime of poverty and deprivation.

And the suicide in Bulandshahr, Uttar Pradesh, of the 17-year-old son of a BSF jawan when his mother was unable to give him legal tender points to many other inadequacies. The case of the 24-year-old Rizwana from Delhi who hanged herself because she could not exchange her old notes for three days is also deplorable.

Nine senior citizens, eight men and one woman, died, after collapsing while waiting in queues in front of banks for long hours, the oldest being a 96-year-old man who collapsed in front of a bank in Udupi which was yet to open in the early morning. They are from the states of Karnataka, Uttar Pradesh, Maharashtra, Kerala, Madhya Pradesh, Bihar, Telangana, and Gujarat.

A man from Howrah, West Bengal, killed his wife who returned home from an ATM empty-handed. Can it be attributed to demonetisation of Rs 500 and Rs 1000 bank notes? Well, the answer may be ‘no’. Or, some legal eagles may argue that it is a murder the foulest, or even of the rarest of the rare category. But the truth may be that the poor suffering man could have gone mad because of the financial mess he was forced into, now compounded by making even his hard-earned money inaccessible to him.

Fight against corruption, eradication of black money and fake currency, and all other high sounding principles are meaningless for him, and others who suffered for no mistakes of theirs.